NEW DELHI : The 1 Feb Union Budget proposes to impose 10% TDS (tax deducted at source) on the theatrical revenue that producers make on each film, in addition to the tax they were already paying on revenue from the sale of telecast rights to satellite TV and digital platforms.

The proposed levy is likely to hit cash flows of the movie producers, experts believe.

“This will create great financial difficulty for the average film studio in India that typically anyway only makes a profit of 15-20% annually, limiting their working capital without them knowing when the refunds will come," said Rakesh Jariwala, partner, international tax services, EY India.

Revenue from theatres across the country still contribute the biggest chunk -- 60% -- to film producers’ earnings in India.

Those in the film business pay 18% goods and service tax (GST) applicable on every movie ticket priced above 100, which is deducted from gross movie collections to arrive at net earnings. These net earnings are divided amongst theatre chains, distributors and producers.

The producer’s share is not more than 45-50% of the film’s box office earnings, which will now be taxed.

Karan Taurani, research analyst with Elara Capital Ltd, explained that the losses would be even severer for big-budget films that don’t do extraordinary business at the box office. For instance, if a film is made for a budget of 100 crore and ends up doing business of 200 crore at the box office, the producer’s share would only be Rs. 100 crore, which would now be taxed, resulting in an overall loss for him.

Besides, with revenue from satellite TV and digital rights sale also being taxed, producers do not enjoy huge margins. Calling it a “ridiculous" move, a film producer said the government probably doesn’t realize 90% of the movies made in India incur losses. This is a combination of various challenges in the value chain, from leading stars taking away as much as 50-60% of the production budget as remuneration to deals with multiplexes.

“The proposal of 10% TDS deduction on the theatrical, satellite and digital revenues will adversely impact producers’ cash flows. This tax as well as the advance tax liability, is both an opportunity cost and an additional unbudgeted finance cost which will put pressure on working capital requirements in an ongoing film production business," Siddharth Roy Kapur, president of the Film and Television Producers Guild of India said.

“We are confident that this anomaly, on being brought to the notice of the Ministry, will be corrected since the stated aim of this budget was to rationalize taxes. Since TDS on technical fees has been brought down to 2%, it would be regressive to tax revenue from film exploitation at 10%," he added.

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